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8/10/2019 Customer Relationships-custorm 2014
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Managing External Relationships
Customers
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Management is intrinsically linked with organisations
But what is the purpose of any organisation?
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What is an organisation
for?
To operate without a loss To operate legally
To deliver something
The purpose of an organisation
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Task
In your groups discuss:
Who are all the different people and groups that an organisation
might have a relationship with?
Which of these relationships do you think are the most important?
And why?
Be prepared to report back to the class
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Employees
Owners
Suppliers Customers
Society
Family
groupsInstitutional
Fund ManagersIndividual shareholders
Government
Pressure groups
Internal
Possible Stakeholders
External
Individual
Managers
Workers
Competitors
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Who does an organisation
have relationships with to
achieve its purpose?
Stakeholders
those individuals or groups who depend on the
organisation to fulfil their own goals and on whom, in turn,
the organisation depends (Johnson & Scholes 1997:196)
But not all stakeholders are equal!
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Customers
One key stakeholder group are customers
Organisations are interested in
Customer satisfaction
In an average business existing satisfied customers are around
70% of volume
Customer perceptions of quality
Customer intention to repurchase
Customer likelihood of word of mouth, etc.
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How do we evaluate
products?
To understand satisfaction an organisation needs to know
how customers evaluate products
If you bought one of your favourite products what would
make you dissatisfied with it?
What expectations did you have about the product before
you bought it?
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The customer evaluation
process
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Meeting expectations
Every point of interaction between company
and customer is evaluated
Interactions are therefore key to quality and
value creation.
It is crucial that organisations are aware of
this and act accordingly.
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Where do expectations
come from?
Your own experience (most trusted source)
Your friends advice (next most trusted)
Marketing information ( least trusted)
Third party communications eg reviews (considered tobe especially valid and objective)
Recent evidence suggests that electronic word of mouth
(WOM) is now highly significant
In the US, between 1 and 3 bad reviews will deter the majority(62%) of consumers from purchasing a particular product or
service Lightspeed Research 2011
More than two-thirds of global internet users seek online
product reviews, recommendations from discussion forums or
feedback from social media sites when making a purchase
decision Nielsen
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What do customers
evaluate?
Customers evaluate the core of the purchase Reliable performance, tangible cues to quality, etc.
If the core is good, satisfaction is not affected much because the
customer expects the core to be good
If the core is bad, dissatisfaction occurs
Customers also evaluate the interpersonal aspects of
service when applicable Responsiveness, competence, empathy, etc.
Supplemental components can affect both satisfaction and
dissatisfaction
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What role does level of
involvement play?
Low involvement Comparison process may be instantaneous and quickly
forgotten e.g. Purchasing toothpaste
Expectations are usually subconscious
If do not receive what expected, expectations become more
explicit e.g. Toothpaste tastes different High involvement
Comparison process is deliberative and conscious e.g.
Purchasing athletic shoes
Customers think about purchases
Customers have expectations that must be met
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How else does evaluation
vary?
Evaluation is also linked to purchase attributes of search,
experience, credence
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Search
Qualities are obvious from visual examinationComparative process is straightforward
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Experience
Expectations may not be fully formed prior to purchaseExperience and expectations simultaneously shape theevaluation
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Barriers to the matching ofexpectations and
experiences
Barriers
misconceptions
inadequate resources
inadequate delivery
exaggerated promises
Expectations
Perceptions of experience
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Value gaps or
discontinuity
Expectation model highlights possibility of value gaps or
discontinuity.
Important to understand these as they eitherProvide existing supplier with opportunity to enhance customer
value
Or
Open up access for competitors to do so
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Source: Grnroos, C. (1983) Strategic Marketing and Marketing in the Service Sector, Marketing Science Institute, Cambridge, MA, p. 75. Reproduced with permission
Customer relationship lifecyclein airline industry
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Why is loyalty important?
Loyal customers are assetsthey generate more profitas they buy more product, cost less to service, are lessprice sensitive and recommend company to others
Its up to 6 times more expensive to win a new customer
as to retain an existing one Dissatisfied customers will on average tell 14 others (so
business lost may be considerably higher than just 1customer)
The average of customers lost is 10% p.a. All retentionsreduce loss in profits
Only 14% of customers are lost due to product problemsbut around 70% are because of indifferent or inaccessibleservice people
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Valuing customers
The more of a customers business that can be attracted, andthe longer it can be kept by retaining the customer, the morevalue that customer will have. Happy customers spendincreasing amounts on the purchase of a specific
product/service over time.So customer retention is an important goal for any company
There are calculations to find out exactly how much each
customer is worth. These calculations are known as CustomerLifetime Value (CLTV) calculations.
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The loyalty ladder
The loyalty ladder is a shorthand way of assessing customervalue.
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How to hold on to existing
customers
Targeting customers for retention
Bonding
Internal marketing Building trust
Promise fulfillment
Service recovery
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The importance of
building relationships
Strong relationships help to retain customers and are thebasis of strong competitive advantage
Thus managing relationships with customers should be a
key focus for an organisation
The corporate solution is the creation of a customerrelationship management (or CRM) system which takes
planning, money and constant work
CRM is a process by which a firm gathers information about
the wants and needs of its customers to enable it to adjust itsofferings to better fit those wants and needs. It requires
ongoing monitoring of customers
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Loyalty development withCRM
Loyalty very weak
what have you done for me lately?
High likelihood of switching
Organisation focused on gaining customers
Customer no longer totally focused on price and product;Relationship is becoming a factorbut they may still switch
Organisation shifts to maximising relationship including segmenting
customer groups in terms of value
High customer satisfaction and beginning of customer dependency
Both organisation and customer must receive positive benefits
(even if there are some hitches along the way)
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A shift to CMR
Increasing shift to Customer Managed Relationships
Customer empowerment
More control over how much personal data to share
More customised service
Permission marketing
Active role of customer and constructive 2 way dialogue
Learning organisation
Co-creation
Changed buying process
But organisations must be careful not to totally hand over
power to customers